March 08, 2013

A Good Employment Report This Month; A Bad Labor Market

Robin Harding:

US adds 236,000 jobs in February - FT.com: Non-farm payrolls rose by 236,000 in February, compared with analyst forecasts of 165,000, as the US labour market continues to strengthen. The unemployment rate fell from 7.9 per cent to 7.7 per cent…

Note that the employment-to-population ratio is exactly where it was a year ago:

In fact, note that the employment-to-population ratio today is exactly where it was three-and-a-half years ago, at the recession trough:

There has been no closing of the output gap and no decline in the unemployment rate from putting a greater share of the adult population to work. All of the decline in the output gap and all of the decline in the unemployment rate is from the collapse in labor force participation. It is true that demography would lead us to expect labor force participation to fall by between 0.1 and 0.2 percentage points per year. But even over 3.5 years that 0.5 percentage point decline in potential labor force participation is absolutely dwarfed by the 5 percentage-point decline in the employment-to-population ratio: one-tenth of our labor market shift relative to 2007 can be attributable to demography; nine-tenths are the result of the Lesser Depression.

The parry I get from the people in Washington is: "Britain, Japan, and Europe are doing much worse!" True. So?

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A Good Employment Report This Month; A Bad Labor Market

Robin Harding:

US adds 236,000 jobs in February - FT.com: Non-farm payrolls rose by 236,000 in February, compared with analyst forecasts of 165,000, as the US labour market continues to strengthen. The unemployment rate fell from 7.9 per cent to 7.7 per cent…

Note that the employment-to-population ratio is exactly where it was a year ago:

In fact, note that the employment-to-population ratio today is exactly where it was three-and-a-half years ago, at the recession trough:

There has been no closing of the output gap and no decline in the unemployment rate from putting a greater share of the adult population to work. All of the decline in the output gap and all of the decline in the unemployment rate is from the collapse in labor force participation. It is true that demography would lead us to expect labor force participation to fall by between 0.1 and 0.2 percentage points per year. But even over 3.5 years that 0.5 percentage point decline in potential labor force participation is absolutely dwarfed by the 5 percentage-point decline in the employment-to-population ratio: one-tenth of our labor market shift relative to 2007 can be attributable to demography; nine-tenths are the result of the Lesser Depression.

The parry I get from the people in Washington is: "Britain, Japan, and Europe are doing much worse!" True. So?